In recent years, increasing numbers of homeowners have turned to their biggest asset to boost their income in retirement. Whether this means generating cash for urgent home repairs or freeing up funds for university-bound grandchildren, lifetime mortgages are quickly becoming more widely used in later life.
But while people today are benefitting more than ever from the advantages of equity release, there are still many misconceptions which continue to linger on.
In this article we address some of the most common equity release myths. Or if you prefer, we also have a ‘myth buster’ video for you to watch:
Myth 1: There will be no inheritance to leave my children
While equity release will reduce the value of your estate, it doesn’t necessarily mean your children will have nothing to inherit. In fact, we offer the option of inheritance protection across many of our lifetime mortgages. This allows you to ring-fence a proportion of your estate, so that it can be passed on to your chosen heirs.
You can also maximise the money left for your children through a ‘drawdown’ plan. Essentially, drawdown plans give you the option to borrow an initial lump sum and also provide a cash facility which you can tap into at any time in the future. As you only pay interest on the amount borrowed, a drawdown plan could be used to reduce the final amount of interest to be repaid, in turn leaving a larger inheritance for your children.
Alternatively, other plans allow you to make either regular monthly, or adhoc repayments, which can minimise the final amount of interest to be repaid.
With interest-only lifetime mortgages, you effectively continue your residential mortgage into retirement as you make monthly interest repayments – which means that at the end of your plan, only the initial amount borrowed must be repaid.
With voluntary repayment plans, you are allowed to make one-off repayments as and when you can afford to – which again could reduce the final amount of interest to be repaid.
Why not use our calculator to see how much money you could save over the years by making voluntary repayments?
We also shouldn’t forget that over time, the value of your house is likely to rise, which again could off-set the final amount to be repaid when your plan ends.
Why not use our calculator to get an understanding of how rising house prices could increase the inheritance you leave.
Myth 2: Equity release isn’t safe
The truth is that equity release is safer than ever.
The equity release market is heavily regulated by the Financial Conduct Authority (FCA), the financial services’ industry watchdog.
We, at Equity Release Supermarket, are also a long-standing member of the Equity Release Council, the industry’s governing body which ensures that its members follow their standards of advice, ethics and conduct. One of these standards is that you must have an independent solicitor by your side.
Why not download our factsheet which explains just how safe equity release is?
Myth 3: I don’t own my home and could be forced to move out
With a lifetime mortgage, the most popular type of equity release plan, you always own your own home. That’s guaranteed. You continue to live in your home until you die or go into long-term care, which means that you never have to worry about moving to another property or downsizing. Also, as you typically don’t make any repayments, your home can never be repossessed.
Myth 4: You will leave your family in debt
The Equity Release Council stipulates that plans recommended from lenders who are members of the council must come with “no negative equity guarantee”. This means that when your beneficiaries should repay your plan, they will never be told to repay more than the value of your property. This is because the debt owed when you die or move into long-term care isn’t driven by house price changes. Therefore, even if your house value drops in the future, your family will never be out of pocket.
As a long-standing member of the Equity Release Council, we apply this rule to all the lifetime mortgage plans we advise on.
To find out more about releasing equity from your house, please contact the Equity Release Supermarket team on Freephone 0800 802 1051, or email [email protected], for a free consultation.